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Reporting Financial Performance
Transcript of Reporting Financial Performance
Performance? To be recognised and measured Who for? Lenders
Public What Should they Report? Activities within direct control of the entity Disclosure Components exhibiting different characteristic in terms of stability, risk, predictability etc: Qualitative Characteristics Predictive Value and confirmatory value Question
You are an outside entity!
What do you need to know to satisfy your opinion about an organisation? Financial position
Generation and use of cash
Financial performance (Cearns, 1999) (Elliot & Elliot, 2011) (Accounting Standards Board , 1999) Measuring financial performance over an extended period is claimed to be more reliable than using a single year (Hackston and Milne 1996) What for? Highlight to users to understand a range of important components of financial performance by an entity in a certain period to assist them in basing an assessment of future results and cashflows (Collings, 2012) Users need to be informed to influence their economic decision (FASB, 2010) (IFRS Foundation 2012) Accounting choices or estimates can be credible signals of a firm’s financial performance (Tarca et al, 2007) When Should they Report? Benefits Exceed the costs
Under a central control that can be accountable for its activities (Cearns, 1999) Prepared depending on convention and legal requirements, no significant financial reporting principle is involved (Accounting standards board 1999) Recognise only gains and losses
Classify items by function
Show separately unusual amounts/ incidence, non-operating expenses and expenses relating to future periods (Accounting Standards Board, 1992) (UEFA, 2013) Free from material error and a faithful representation, neutral, prudent and, complete (Scannell, 2012) (Calkins and Harris, 2013) Implications Anticipate potential changes in the economical environment but data is historical
Excessive pressure is one of the determinants of misreporting
Not just on management's ability to estimate, but also on incentives to allocate reported profit to different reporting periods (Accounting Standards Board, 1999) (Ramamoorthy, 2008) (Barker, 2004) Time: (Arthur, 2012) Predicted sp $10.63 & R $11.9bn
Actual sp $9.03 & R $11.5bn
Cease trade lost $20bn (9% tumble) Incentive Significant positive relationship between profitability and disclosure
Due to higher quality accounting and transparency
IFRS implementation has favourably affected the financial performance (e.g. profitability and growth potential) of firms (Waddock & Graves, 1997) (Tendeloo and Vanstraelen, 2005) (Iatridis, 2010)
What is Financial Performance
Example of performance
Incentive to Report
Reference References: Accounting Standards Board (1992). Financial Reporting Standard 3. ASB. Available at: http://www.frc.org.uk/Our-Work/Publications/ASB/Amendment-to-FRS-3-Reporting-Financial-Performance/FRS-3-Reporting-Financial-Performance.aspx (Accessed 29/01/2013)
Accounting standards board (1999). statement of principles for financial reporting. London. ASB Publications. [Online]. Available at: https://www.frc.org.uk/getattachment/a12aab64-45fc-4d8e-9acd-0097d686178b/Statement-Statement-of-Principles-for-Financial-Reporting.aspx (Accessed: 24/01/2013)
Barker, R (2004) Reporting Financial Performance. Accounting Horizons: June 2004, Vol. 18, No. 2, pp. 157-172.
Arthur, C. (2012). Google shares suspended after accidental email wipes $22bn off value. The Guardian. [Online] Available at: http://www.guardian.co.uk/technology/2012/oct/18/google-shares-suspend-email-22bn (Accessed 27/01/2013)
Calkins, B L, Harris A. (2013). Allen Stanford’s Ex-CFO James Davis Gets 5-Year Sentence. Bloomberg. [Online] Available at: http://www.bloomberg.com/news/2013-01-22/allen-stanford-s-ex-finance-chief-gets-five-year-prison-sentence.html (Accessed: 28/01/2013)
Cearns K. (1999) ACCOUNTING STANDARDS BOARD JUNE 1999 DISCUSSION PAPER , REPORTING FINANCIAL PERFORMANCE: PROPOSALS FOR CHANGE, London. June 1999. Accounting Standards Board Limited [Online]. Available at: http://www.frc.org.uk/getattachment/a037962c-03b4-4b83-b721-f9104550332e/Reporting-Financial-Performance-Proposals-for-Change.aspx (Accessed: 24/01/2013)
Collings, S. (2012). FRS 3: Reporting financial performance. [Online] AccountingWeb. Available at: http://www.accountingweb.co.uk/article/frs-3-reporting-financial-performance/531600 (Accessed: 22/01/2013)
Elliott, B, Elliott,J. (2011). Financial accounting and reporting. 14th ed. Harlow, Pearson Education Ltd. P140 FASB. (2010). Conceptual Framework for Financial Reporting. Financial Accounting Foundation. [Online] Available at: http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175822892635&blobheader=application%2Fpdf (Accessed: 25/01/2013)
Hackston, D. Milne, M.J. (1996), Some determinants of social and environmental
disclosures in New Zealand companies, Accounting, Auditing and Accountability
Journal, Vol. 9 No. 1, pp. 77-108.
Iatridis, G. (2010). IFRS Adoption and Financial Statement Effects: The UK Case. International Research Journal of Finance and Economics, p 38, p165-172
IFRS Foundation (2012) Reporting Financial Performance. Paper presented at Joint World Bank and IFRS Foundation ‘train the trainers’ workshop. London. 30 April- 4 May 2012, unpublished
Ramamoorti, S. 2008. The psychology and sociology of fraud: Integrating the behavioral sciences component into fraud and forensic accounting curricula. Issues in Accounting Education 23 (4): 521–534
Scannell, K. (2012) Stanford sentenced to 110 years in prison. Financial Times. [Online] Available at: http://www.ft.com/cms/s/0/2c5b7ba8-b4df-11e1-aa06-00144feabdc0.html#axzz2JMtI9hxr (Accessed: 28/01/2013)
Tarca, A, Brown P R, Hancock, P, Woodliff, D R, Bradbury, M E, Zijl T. (2007) The Matrix Format Income Statement: A Case Study about Earnings Management and Reporting Financial Performance. ISSUES IN ACCOUNTING EDUCATION. Vol. 22, No. 4. p 607–623
Tendeloo, B, Vanstraelen, A (2005). Earnings Management Under German GAAP Versus IFRS. European Accounting Review. Vol. 14 p 1) p.155-180.
UEFA. (2013). Financial fair play. [Online] Available at: http://www.uefa.com/uefa/footballfirst/protectingthegame/financialfairplay/index.html (Accessed: 28/01/2013)
Waddock, S A, Graves, S B. (1997). The corporate social performance-financial performance link, Strategic Management Journal, Vol. 18 No. 4, p. 303-319. Dipesh Meisuria 11062160